37) The KL Partnership is owned equally by Kayla and Lisa. At the beginning of the year, Kaylas tax basis in her KL interest is $20,000 and Lisas tax basis is $16,000. Partnership debt did not change from the beginning to the end of the tax year. KL reported the following income and expenses for the current tax year:

Sales revenue	$150,000
Cost of sales	80,000
Distribution to Lisa	15,000
Depreciation expense	20,000
Utilities	14,000
Rent expense	18,000
Long-term capital gain	6,000
Payment to Mercy Hospital for Kaylas medical expenses	12,000

Prepare a Microsoft Excel spreadsheet that could be used to accumulate KLs information to be reported on Form 1065, page 1 [Ordinary business income (loss)] and page 4 (Schedule K). Include calculations and subtotals to ensure the spreadsheet will update if the information changes. How much is the partnerships ordinary income on page 1? What information is shown on Schedule K?

Use the information in part (a) to prepare Form 1065, pages 1 and 4 (Schedule K) for the KL Partnership. On page 1, omit items A to J at the top if the facts do not provide that information. For Schedule K, line 14, assume both partners are active in the partnership.

Add columns to your spreadsheet to allocate amounts to Kayla and Lisa. (For this requirement, disregard the information related to the qualified business income deduction.) Show the partners allocation percentages at the top of their columns, and use those percentages in formulas to allocate any separately stated items that should be allocated. (Note that some items are directly assigned to a partner.) What information will be shown on Kaylas and Lisas Schedules K1, Part III? What items will Kayla and Lisa report on their Federal income tax returns?

Expand your spreadsheet. Add rows for beginning basis and ending basis below Kaylas and Lisas columns, and calculate each partners ending basis in the partnership interest. How do you make this calculation? What is each partners basis in her partnership interest at the end of the tax year?

Consider the results if the partnerships revenues were $100,000 instead of $150,000. What happens if you update the revenues line on your spreadsheet? Are your new amounts correct for the Form 1065/Schedule K information, Schedule K1 information, and partners bases? Why or why not? What conclusions can you draw?